Driven by a confluence of factors including the credit crunch, commodity price collapse and widespread economic malaise, the U.S. land rig count decline witnessed between August 2008 and June 2009 was by far the most devastating downturn of the last 20 years. On a percentage basis, the recent downturn was similar to the 1998-1999 downturn, it just occurred in half the time. In absolute terms, more than twice as many rigs fell out of the rig count in the 2008-2009 downturn than in each of the last two major collapses.
However, the recovery so far has been promising, and in the five months since the downturn, the rig count has recovered by 241 rigs or 29%. In absolute terms, this is more than in the first five months of either of the prior two recoveries. On a percentage basis, the current rebound is unfolding faster than the 2001-2002 recovery but not as quickly as the 1998-1999 recovery. The table below summarizes the last three downturns and the five month periods following the troughs.
Rig Count Likely Headed Higher, but Risks Abound
Although a general consensus has formed that the land rig count will continue to increase during 2010, it would be wise to balance optimism with a sense of caution in the current recovery. While the recovery periods in each of the last two cycles generally exhibited an up and to the right pattern (for two and six years respectively), the present upturn is occurring in a noisy environment where multiple variables could take a course that would result in a plateauing rig count or possibly even a second bottom.....read the entire article.
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